Home Values Built On Rotten Foundations
http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=37480
From the article by Richard Benson:
"We have been gleaning facts “brick by brick” in order to write this story on the housing market and what it all means for Wall Street and the economy. The story is simple: While the Federal Reserve is slowly raising interest rates, it is our observation that the housing price bubble is already bursting of its own accord.
Let me begin with the sale of a property located a short distance away from our modest casa in Palm Beach, where the big houses have names. Casa Apava, an estate with ocean and lakefront land totaling 18 acres, is under contract for about $70 Million by its current owner, Ronald Perelman. This same property sold for $14.25 Million in 1987. If the sale goes through, it will be the largest residential real estate sale in United States’ history. (In 2004, the property was assessed for $33.4 Million and taxes were a modest $664,000 a year, or $55,333 a month). Needless to say, the buyer is reported to be the chairman of NVR, Inc., the nation’s eighth largest home builder. Clearly, selling homes at inflated prices to average Americans, who bought them using other people’s money, has paid off handsomely for this buyer.
The size of the housing bubble should not be underestimated. In middle America, housing prices are up 44 percent over the past 5 years while in the momentum markets, such as Las Vegas and Southern California, annual “price pops” of 20 to 40 percent have commonly been recorded until just recently. Housing is big business. In 2004, about 8 million new and used homes will sell with a total transaction value of $1.9 to $2 Trillion. Mortgage debt will rise about $800 billion to $7.5 Trillion by the end of this year. The increase in mortgage debt represents the spending that the Bush Administration needed to keep a $12 Trillion economy moving forward. "
Read the complete story at the above link.
David
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For everyone that thinks it's heading down, there are others betting on it continuing to rise. It's always that way.